By Justin Spittler
Let’s talk shrinkage.
It’s a serious problem that's affecting all of us.
I’ll explain why in a second. But first, look at the size of this candy bar…
It’s a joke.
As I'm sure you know, it wasn’t always like this. When I was a kid, a Fun Size Milky Way was much bigger. You actually got your money’s worth.
Today, it feels like you’re being robbed blind.
And it's not just candy manufacturers that are short-changing customers. Companies around the world are doing the exact same thing.
There’s even a name for this shady practice…
• Shrinkflation is when companies reduce the size or quantity of what they sell to avoid raising prices…
In short, it’s a way to conceal inflation.
And like I said, it’s happening across the world.
A company in Iceland recently reduced the number of frozen French fries in its packaging. It now sells 1.25 kilograms of fries instead of 1.5 kilograms. That’s a 17% reduction. Yet it’s charging customers the same price.
In the United Kingdom, a vodka company is now selling a 275-milliliter bottle of vodka instead of 330 milliliters while charging the same price. That’s the equivalent of a 17% price hike.
• Now, some people will say shrinkflation is a petty crime…
You might even be wondering why I bothered to write about it.
In a nutshell, shrinkflation adds up quickly. If left unchecked, it can ruin a family’s finances.
Let's say you’re a mother with four children.
If you spend $100 on groceries but get 20% less food, what are you going to do?
The answer is obvious. You’ll buy more food, which means spending more money.
• Shrinkflation also masks inflation…
Inflation measures how quickly prices for everyday goods and services rise.
Economists calculate it by pricing a “market basket.”
This basket represents goods and services that a typical family buys.
But this method is flawed.
Economists don’t weigh chocolate bars. They don’t count the number of fries in a bag. And they don’t measure how much vodka comes in a bottle.
In their eyes, a chocolate bar is a chocolate bar. It doesn’t matter if the bar contains 20% less chocolate than it did a couple years ago.
Of course, that’s not how normal people think.
If your money buys less, one of two things is going to happen:
Your quality of life is going to suffer.
You’re going to spend more money to offset the fact that a dollar doesn’t buy as much as it used to buy.
• In short, shrinkflation is a serious problem…
And it’s only going to get worse.
That’s because inflation is picking up. As we've shown you, inflation is now rising at its fastest rate in five years. Prices for everyday goods and services are rising three times faster than they were two years ago.
Unless this changes, companies are going to have to either raise prices or reduce the quantity of what they sell.
• To make matters worse, corporate profits are falling…
You can see what I’m talking about in the chart below.
It shows corporate profit margins for U.S. companies since 1947.
Corporate profit margins measure how much money a company keeps after it pays its employees, lenders, and Uncle Sam.
The higher the profit margin, the more money a company gets to keep.
Below, you can see that profit margins hit a record high in 2011. They’ve been falling ever since.
This isn’t a good sign.
• You see, profit margins are cyclical…
They go through ups and downs.
Profit margins usually increase when the economy is growing. When the economy slows, they shrink.
Above, you can see that profit margins are clearly shrinking.
Not only that, they’re in a downtrend. That means they should keep falling.
The more companies struggle to make money, the more shrinkflation we’re going to have. That’s the bad news.
• The good news is that you can protect your wealth from shrinkflation…
The best way to do this is to own physical gold.
Gold, as we often point out, is real money. Unlike cash, it doesn’t lose its value when inflation takes hold. Instead, it becomes more valuable.
You see, it’s only a matter of time before the average person realizes that they’re being ripped off at the grocery store.
When that happens, people are going to see that inflation is much higher than the government admits.
There’s going to be a mad rush into gold.
You’ll want to own gold before that happens.
If you don’t already own gold, I suggest you buy some today. You can get started by reading our free gold buyer’s guide right here.
• Reminder: Our longtime friend Porter Stansberry is hosting an emergency briefing tonight at 8 p.m. ET…
Porter says a secret civil war is happening right now in Washington. You won't hear about it on CNBC or read about it in The Wall Street Journal…
But it's about to cause a chain of events that will have a huge impact on the U.S. economy and stock market before the end of 2017.
Porter will share all the details at tonight’s emergency briefing. Save your spot here.
Delray Beach, Florida
April 5, 2017
Chart of the Day: This Commodity Could Take Off Soon
Speaking of chocolate…
Look at the chart below. It shows the iPath Bloomberg Cocoa Subindex Total Return ETN (NIB) since May 2016. This exchange-traded note (ETN) tracks the price of cocoa, the main ingredient in chocolate.
You can see that NIB has traded in a tight downward channel since last August. But it’s rallied 13% over the past month.
It now looks like NIB wants to break out of its downtrend. If that happens, cocoa prices could soar.
Keep NIB on your radar if you’ve been wanting to add commodities to your portfolio.
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